Earlier this month, the Bank of Mexico (Banxico) published a circular, wherein it laid out its plan to issue permits to bitcoin exchange platforms and other crypto-related businesses operating in the country.
Banxico’s circular stated that to get the right permits, crypto-based businesses in the country would be required to provide detailed business plans and company profiles.
Each profile will have to contain various aspects of how the business operates including its business model, transaction fees and know-your-customer (KYC) security measures.
Per the circular, the principal objective of the regulator is to curb the occurrence of crypto-based money laundering. To achieve this, it has implemented certain safeguards that will keep the operations of crypto businesses away from the traditional financial sector.
A report by local news outlet El Siglo de Torreón clarified that any business looking to submit their application for a permit online will need to do so with a digital certificate, which helps provide confidentiality.
For those who don’t have these certificates, the filing will have to be mailed to the Gerencia de Operación y Continuidad de Negocio de los Sistemas de Pagos, Banxico’s payment systems division.
Application for this permit has been open since September 2018, although companies might now have to wait until March 2020 before the new law will come into effect.
A Regulatory Roadblock
The central bank has also prohibited any regulated financial institution from transacting with crypto-related businesses.
In an op-ed published by advocacy group Coin Center, written by Executive Director Jerry Brito and Research Director Peter Van Valkenburgh, the authors noted that the actions of Banxico are draconian, effectively putting the local crypto market to the sword.
The post states:
“Cryptocurrency exchanges dealing in fiat currency need access to the local banking system. Under the new law, that access will be severely impeded. While the central bank can claim that they are not ‘banning’ exchanges, the effect will be the same.”
The authors of the post also attacked the central bank for taking advantage of a recently passed fintech legislation to crack down on crypto exchanges in Mexico.
“As originally envisioned, the new fintech law should have opened Mexico for innovation by not only allowing cryptocurrency exchanges to continue operating but also to provide them a reasonable path to better regulation as full-fledged financial institutions. The central bank, however, has now proposed to do the opposite, closing the door on these promising new technologies by prohibiting any regulated financial institution from offering cryptocurrency exchange, transmission, or custody services to customers.”
Some of the arguments offered by Banxico for its proposed law include the volatility and complexity of cryptocurrencies, as well as their propensity to be used for illegal purposes.
However, Brito and Van Valkenburgh faulted the premise, claiming that those same properties are inherent in concepts like the internet and cars. Still, that hasn’t stopped people from using them.
They concluded the op-ed by calling for support as they look to fight against the regulations, which have now officially entered a consideration period.
It is clear why Banxico would resort to establishing regulatory measures on its native crypto market. While the crypto industry shows potential for ushering in a radical change to the way that transactions are conducted worldwide, there has also been a global awakening to the risks that these assets have to investors and traders.
Other jurisdictions, like Japan, have made similar moves, with the sole purpose of establishing a regulatory framework for crypto-based firms to operate and thrive.
Limiting the Growth of Crypto
However, according to a report from Mexican news outlet El Economista, the reforms proposed by Banxico could end up destroying the growth prospects of the Mexican crypto market, while creating further division between the country’s crypto industry and its traditional financial sector.
The piece argued that, should Banxico get its way, the reforms would “limit the use of cryptocurrencies to internal use only for banks and regulated FinTech companies,” leaving crypto-based firms with no option but to operate outside of the law’s scope.
The outlet quoted Rocio Robles, managing director at the National Banking and Securities Commission, who explained that the new laws could make various trading operations much more difficult. Robles pointed out that while the rules won’t necessarily halt the growth of the country’s crypto industry, its implementation would create many obstacles to its development.
He said that with these laws in place, digital assets “could continue to make progress in Mexico, but they will involve a lot more hard work.”